RBC Capital Markets’ Mitch Steves is bullish on cryptocurrencies.
A technology industry analyst, Steves regularly covers Nvidia (NVDA), which produces GPUs used for mining some cryptocurrencies. But in a new research note, he took a deep dive into a $10 trillion market call he made recently for the cryptocurrency world.
“While the Crypto-Currency space has many risks, the opportunity appears vast with constant technology updates,” Steves wrote in a 36-page note.
The current market cap for cryptocurrencies is around $700 billion.
Steves highlighted several points to build out his case. One of those standouts was how cryptocurrencies offered a secure and decentralized world computer without a third party intermediary. He pointed out that the “one positive technology item” that everyone can agree on is that Blockchain, the underlying technology, has never been hacked. There’s potential to build upon the decentralized technology.
“While the store of value and payment use cases are well known, we think the underlying technology is misunderstood,” Steves wrote.
To illustrate his point, he compared Filecoin, a data storage network backed by an application token, to cloud storage and file storage company Box (BOX).
“With Box, your data is owned and controlled by a third party that has access to your information (a photo loaded can be retrieved by anyone with access to Box servers – employees). With Filecoin, your storage is distributed and decentralized, making the holders unable to retrieve your photo (they would need to hack every computer on the decentralized network – Blockchain). Your information is now secure, and without your private keys, it cannot be accessed. This is the first example of building a ‘World Computer’, as we could apply the same concept to a wide variety of decentralized applications (Dapps).”
To a lesser extent, cryptocurrencies can act as a store of value.
“This is the most commonly cited use case for cryptocurrencies and the least interesting, in our view” he said. “[O]ffshore accounts valued at an estimated ~$21 trillion and gold at $8 trillion.”
On the other hand, Steves acknowledged that there are “many, many” risks to crypto, including government intervention.
“If crypto currencies are stolen, the government has no incentive to catch the criminal,” he wrote, noting they are not backed by the government.
There’s also the possibility of an attack if a single entity were to garner more than 50% of the computing power then they could attack the network. Another risk is coordinated attacks to manipulate prices. Another issue is the potential for wallet hacking.
“Computers are being hacked to steal [computing] power,” he said. “[W]e think smartphone wallet hacking is the next major risk.”
So while the upside appears to be high, so to is the downside.
Julia La Roche is a finance reporter at Yahoo Finance. Follow her on Twitter.